Financial Dictionary.

This is a browseable and searchable reference tool for terminology relating to UK-based personal finance and financial products.

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Unit Linked Funds

Definition: This is the structure used by most invesment funds. Before the 1970's, the only investment choice was either With-Profits funds, or direct investment in shares and bonds. The innovation of unit-linked funds is that the underlying investments held within a fund are split into a number of 'units' which have value that rises and falls in line with the underlying value. Such funds are open-ended, which means that new units can be created on demand. Therefore the value of the unit is based upon the underlying fund value divided by the number of units in circulation. The value of all units should reflect the Net Asset Value (NAV) of the fund, unlike closed-ended funds, which can trade at a premium or discount to their NAV. The rise of unitised funds has meant that fund portfolios have been able to become more focused, and you can choose investment funds that focus on virtually any region, industry, sector or asset type, enabling investors to build specific porfolios of investment funds. The charging structure of unit-linked funds are more transparent, as a known annual management charge is deducted from the value of your units each year.

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Financial Dictionary.